Market News

(Bloomberg) — Energy-starved Asian nations are taking advantage of US sanction waivers to buy Russian oil to fill gaps caused by the Iran war.

The Philippines took its first cargo of ESPO crude in nearly six years, while South Korea’s first Russian naphtha shipment this year has arrived at Daesan port and is awaiting discharge, according to ship-tracking data. Other countries including Sri Lanka are in talks with Moscow over shipments.

The war in the Middle East between the US, Israel and Iran has pitched Asia into a severe energy crunch, with the near-total closure of the Strait of Hormuz choking off supplies. The disruption has left the region’s refiners desperate to secure alternative cargoes of oil and products.

“There’s no other choice,” said June Goh, an analyst at Sparta Commodities. “Refineries that do not have much flexibility will be the first to look for Russian crude, as they are relatively easy replacements for Middle Eastern supplies.”

Russia has emerged as one of the beneficiaries of the war, with the conflict lifting crude prices and Washington easing long-standing curbs on its exports. The assault against Tehran — which began in late February — has also taken the global spotlight off Moscow’s invasion of Ukraine.

Asian countries are taking advantage of a pool of Russian supply made available by the waivers, which free up cargoes loaded before March 12. The US effort is meant to help contain rising oil prices, even as it has drawn criticism for boosting Moscow’s revenues. A similar step by Washington to release Iranian barrels has had less impact, with would-be buyers remaining cautious.

In South Korea, it’s unclear whether local companies will be able to secure more Russian crude and naphtha as unloading and payment will have to be completed by April 11, when the US waiver expires, local broadcaster YTN reported on Tuesday, citing an official from the Industry Ministry. Naphtha is a key feedstock used to make plastics that can also be blended into gasoline.

Other economies such as Japan may also consider turning to Russian supplies as the war drags on. While Tokyo would have to weigh up any possible diplomatic implications, the country is in need of oil and petrochemical feedstocks, and already imports Russian liquefied natural gas.

Before the waivers, Russian crude buyers in the region were largely limited to India processors and independent refiners in China, with other potential takers deterred by the prospect of losing access to the US financial system. The two nations still account for the lion’s share of Russian imports, with India taking about 60 million barrels for this month, while Russian flows have made up a larger portion of China’s overall crude mix this year.